Jane the Actuary Uncategorized

Forbes post, “Christmas Dinner, The Christmas Proclamation, And A Few Words On Culture And Policy”

Originally published at Forbes.com on December 26, 2019.

 

A few days ago, I asked my twitter followers to share with me their traditional Christmas meals.

“My mother did ham. My grandmother has switched from ham to prime rib.”

“Traditional is Turkey . . . but since it will be smaller (13) group this year, my wife is doing Lasagna and a Chicken dish.”

“We’re having leg of lamb for Christmas Eve & Sukiyaki (w/ duck eggs).”

“Jambalaya.”

“My family is from southern Italy so we go with the fish on Christmas Eve.”

“My grandmother made roast beef (as an American food) and an array of Syrian dishes – string beans (with lamb), grape leaves stuffed with rice (and lamb), hummus (sometimes topped with lamb) and heaps and heaps of Syrian pastries.”

“My traditional Christmas dinner is beef rouladen, with all the trimmings. It’s been made the same way for the last 40 years, since the recipe was shown to me.”

Which is about what I expected: the traditional turkey with all the trimmings at Thanksgiving has no counterpart at Christmas; instead, families choose to continue traditions brought with them from the Old Country or regional traditions, or might choose something entirely new — or new-to-them.

Is this an example of the magnificent diversity and multiculturalism present in America?

At the same time, 90% of Americans surveyed by Pew in 2017 reported that they celebrate Christmas in some fashion or another. Although it is true that Millennials are considerably more likely to consider Christmas to be a “cultural” rather than “religious” holiday, compared to older generations, there is no substantial difference in the percent of those responding “yes” to the overall question by age — 88% of Millennials do so relative to 90% of Baby Boomers and 92% of Gen X.

Is this an example of something that unites (almost all) Americans?

Let me offer a third example: the “Christmas Proclamation,” as used by the Roman Catholic Church and certain other “high church” denominations, such as the Episcopalians. Here’s the current English text:

“The Twenty-fifth Day of December,

when ages beyond number had run their course from the creation of the world,

“when God in the beginning created heaven and earth, and formed man in his own likeness;

“when century upon century had passed since the Almighty set his bow in the clouds after the Great Flood, as a sign of covenant and peace;

“in the twenty-first century since Abraham, our father in faith, came out of Ur of the Chaldees;

“in the thirteenth century since the People of Israel were led by Moses in the Exodus from Egypt;

“around the thousandth year since David was anointed King;

“in the sixty-fifth week of the prophecy of Daniel;

“in the one hundred and ninety-fourth Olympiad;

“in the year seven hundred and fifty-two since the foundation of the City of Rome;

“in the forty-second year of the reign of Caesar Octavian Augustus, the whole world being at peace,

“JESUS CHRIST, eternal God and Son of the eternal Father, desiring to consecrate the world by his most loving presence, was conceived by the Holy Spirit, and when nine months had passed since his conception, was born of the Virgin Mary in Bethlehem of Judah, and was made man: The Nativity of Our Lord Jesus Christ according to the flesh.”

Wikipedia provides the prior 16th century text, in which specific years were assigned to time since the creation, the flood, the birth of Abraham, etc., to the birth of Jesus. The proclamation was removed with the liturgical reforms of the 1960s, then restored by Pope John Paul II in 1980 with the altered text. And the proclamation itself dates to the early Middle Ages, which church fathers had worked out, to the best of their abilities, the birth of Jesus relative to historical events from not just Jewish history and the Bible but from the Greeks (the Olympics) and the Romans (the founding of Rome).

And this, too, has to do with culture, and a deeper layer of culture that we don’t necessarily have the same awareness of as these more superficial and visible items such as traditional foods or celebrations. Every now and again I revisit the book Riding the Waves of Culture, by Fons Trompenaars and Charles Hampden-Turner (1998, McGraw Hill), which focuses on culture from a global business perspective, and which provides a deeper level of understanding of cultural differences across seven dimensions: five “relational orientations” of

  • Universalism versus particularism (”abstract societal codes” vs. obligations to people due to relationships),
  • Individualism versus communitarianism,
  • Neutral versus emotional (being detached vs. expressing emotions in interactions with others),
  • Specific versus diffuse (in a business context, making a case for the deal vs. building a relationship with the customer), and
  • Acheivement versus ascription (judging based on personal accomplishments vs. status attributed to you by family, education, or other status markers),

as well as attitudes to time and attitudes to the environment.

Now, with respect to time, the onetime self-proclaimed expert on diversity at my former employer liked to use as a favorite example of the importance of understanding across cultures, the differences in timing expectations of a German (an event starts when you say it does) and a Latin American (no one shows up for a party until well after the specified start time). But what these authors refer to is a much bigger-picture orientation — having to do with how a given culture thinks about the past, present, and future. They write,

“Especially important is whether our view of time is sequential, a series of passing events, or whether it is synchronic, with past, present, and future all interrelated so that ideas about the future and memories of the past both shape present action” (p. 123).

In other words, for a Catholic priest to proclaim this text situating the birth of Jesus among these other historical events — and for, in its current status as quasi-optional, some churches in some countries to incorporate it, and others not, and for it to resonate with some cultures but not others — is a deeper aspect of culture, of the sort that is much more invisible to us.

And this is where policy comes in.

After all, we’ve got multiple presidential candidates promising massive boosts to our social welfare/social insurance system — increases in government child care provision, government-provided healthcare, boosts in Social Security benefits, etc. And a typical skeptical response to “we should be Iceland” is “we’re too much bigger than Iceland to copy them,” which is missing the point. But it is nonetheless the case that in addition to looking at countries we might wish to copy and trying to gain a complete picture of their system, and the good and the bad, and likewise understanding other such instances as illustrations of pitfalls, it is likewise important to understand how our culture in America, in terms of these deeper dimensions, plays into all of this. And a system which might work perfectly well abroad might not, here, due to these cultural differences — and, similarly, exporting some characteristic of our society and economy elsewhere might have similar problems.

And, yes, this is really, really hard to do because these dimensions of culture are so hard to see, like the proverbial fish not knowing they are in water.

 

December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.

Jane the Actuary Retirement

Forbes post, “No Hope In Sight For Chicago’s Worst-In-The-Nation Pension Plans”

Originally published at Forbes.com on August 1, 2023.

Back on July 18, the Equable Institute released the 2023 version of its annual State of Pensions report, which means that, yes, it’s time for another check-in on these infamously-poorly-funded pension plans. Among the wealth of tables is a list of the best and worst-funded of the 58 local pension plans studied, and, yes, you guessed it, the bottom five spots are Chicago plans, with the bottom three at levels far below all others:

  • Municipal employees, 21% funded,
  • Chicago police, 21.8% funded, and
  • Chicago fire, 18.8% funded.

Combined with the Chicago Laborers’ pension fund, with a 41% funded status, the pensions for which the city bears a direct responsibility have a total pension debt on a market value of assets basis of $35 billion. (This data is from the actual reports*, released in May, which doesn’t match the Equable report precisely.) Spot fifth-worst is taken up by the Chicago Teachers, at 42.4% funded, and the first non-Chicago system in their list, Dallas Police & Fire at 45.2%, is twice as well funded, percentage-point-wise, as the Terrible Trio.

If those rankings and funded ratios aren’t dismaying enough, here are some other ways to look at it:

The Police and Fire pensions aren’t targeted to be 90% funded until 2055, and Municipal, not until 2058. Even with this long delay, the Fire plan is scheduled to contribute 78% of pensionable payroll every year until that date, and the Police plan, 68%. And in terms of the overall percent of the budget, the city spends 20% of its operating budget on pensions plus 80% of the property tax revenue it receives as a separate line-item.

And future pension increases for currently clout-less groups aren’t just hypothetical and in the distant future. In 2021, despite then-mayor Lori Lightfoot’s opposition at the time, a more-generous COLA benefit previously available only to grandfathered Fire employees was made available to all in legislation passed by the state, based on the rationale that the state had been continuously changing the grandfathering date so that it was more honest to do away with it altogether. No politician questioned this false narrative: the perpetual cut-off-date changing ended in 2004, when the city and state truly got serious about pension underfunding, and only resumed in 2017, with the same individual, Robert Martwick of Chicago, pushing that change. The following session, Martwick pushed for the same change for the Police, plus additional enhancements, a bill which, as a small silver lining, was not passed, but he hasn’t given up, and this past spring had been pushing for a fix for the entire Tier 2 system, despite the lack of actuarial analysis, which he brushed off as “quite expensive.” And even though those bills didn’t get passed, reporting indicates that the police fix was merely delayed until this coming fall, and, what’s more, one of the co-sponsors of Martwick’s bill to boost Tier 2 Chicago firefighters’ pensions is now deputy chief of staff to Mayor Johnson.

So, given all this, what is the new mayor’s position?

At the moment, new mayor Brandon Johnson is hosting a series of community roundtables on the budget, which is standard procedure. Although, as the Chicago Tribune reports, budget director Annette Guzman has been cautioning her audience that “Unfortunately, it’s sort of like a zero-sum game . . . OK, there’s only so much resources that we have,” Johnson himself has been encouraging attendees to dream big: “How about a budget that creates more than enough for revenue?” And he added a special session for teens and young adults, at which, as Block Club Chicago reports, “Volunteers at each table took notes and helped move the conversation along, asking young people what ideas they had for investment.” (Yes, it is a clear red flag when ordinary social spending is elevated with the label “investment,” implying that it “pays for itself” and is therefore in a special category in which the immediate cost is not an issue.) Throughout his campaign, he promised a wide range of spending increases and tax hikes to fund them, so there is still much uncertainty as to his actual budgeting decisions when bills have to be paid and his new tax wish list is restricted by the need for state approval.

He does, at least, acknowledge the issue, and last May established a working group to discuss the issue, saying, in a statement (per the Tribune),

“As Mayor of Chicago, I am committed to protecting both the retirement security of working people, as well as the financial stability of our government so we can achieve our goal of investing in people and strengthening communities in every corner of the city . . . Together, with our state legislative partners in Springfield, I am establishing a working group to collaborate on finding a sustainable path forward to addressing existing gaps in the city’s four municipal pension systems (Firefighters, Police, Municipal, and Laborers).”

What that means, in practice, appears to be a matter of finding new tax revenues, for example, according to the reporting at WTTW. And in that regard, it is disappointing that the actual members of Johnson’s Pension Working Group are exclusively local politicians, Chicago government officials (e.g., the CFO), representatives from the affected unions and, in the case of one individual without a listed affiliation, a longtime staffer in the Pritzker administration and the Chicago Public Schools. There are no representatives of the Civic Federation, with its history of promoting good governance, or any other organization with a similar point of view.

What’s more, Ralph Martire and his Center for Tax and Budget Accountability continue to promote what he calls “reamortization” as a solution to the problem, both through an April Chicago Sun Times commentary and through the release of a report, “Understanding – and Resolving Illinois’ Pension Funding Challenges” (which is an update of a prior proposal). This proposal, which is directed at Illinois pensions but is clearly meant based on other comments to be an all-purpose fix, sounds innocuous, as merely a sort of “refinancing” as one might with a mortgage, but it’s really much more as he proposes to

  • Reduce the funded status target from 90% to 80%, based on the claim that the GAO deems this funded status to be the right target for a “healthy” plan (whether he deliberately misleads or not, he is wrong here, the National Association of State Retirement Administrators or NASRA clearly explained more than a decade ago that 100% funding is always the right target and the only significance of an 80% level is that private sector pension law requires plans funded less than 80% to take immediate corrective action rather than have a long-term funding schedule, and the American Academy of Actuaries more explicitly calls this a “myth”);
  • Issue large sums of Pension Obligation Bonds, which were questionable already when they first began promoting this but are now a terrible idea with our current high bond rates, all the more so for a low-credit-rating city such as Chicago; and
  • Move contributions from last day of the fiscal year to the first day, which he argues would be a gain of a year’s investment return while forgetting that it requires the city to have this money on Day 1 and forgo the other uses it would have.

So where do we head now? In a perfect world, the need to make Tier 2 changes would set the stage for a “grand bargain,” similar to Arizona’s pension reform, in which they got public support to make a very limited exception to their own constitutional pension protection clause. In the real world, in which fiscal conservatives have disappeared from Chicago or Illinois government even as a strong minority voice and in which Covid funds have filled budget holes and allowed the illusion of spending prudence, I don’t hold out much hope for such a solution.

 

*Links for the pension funds’ actuarial reports are here: Chicago Fire, Chicago Police, Laborers, and Municipal Workers.

 

Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.

Jane the Actuary Retirement

Forbes post, “Two Key Takeaways From The New CDC Life Expectancy Data”

Originally published at Forbes.com on September 2, 2022.

The headline of Wednesday’s New York Times report announces, “U.S. Life Expectancy Falls Again in ‘Historic’ Setback,” and the just-released data from the CDC is shocking: During the second year of the pandemic, life expectancy not only didn’t recover from its 2020 drop, but it dropped further, from 78.8 years in 2019 to 77 in 2020, down further to 76.1 years in 2021, based on provisional data.

What’s more, gaps among ethnic/racial groups (mostly) widened sharply.

To be sure, Hispanic and Asian-ethnicity Americans’ life expectancy remained higher than that of (non-Hispanic) white Americans, in line with general patterns in which immigrants have greater life expectancy than native born residents, though the gap for Hispanics narrowed, from 3.1 years’ greater life expectancy to only 1.3 years. (For Asian-ethnicity Americans, the gap widened slightly, from 6.8 to 7.1 years.)

However, for Black Americans, the 4 year lower life expectancy in 2019 became 5.6 years in 2021. And for American Indian/Alaskan Natives (AIAN, in CDC parlance), the drop was even worse, from a 7 year gap at 71.8 years to an 11.2 year gap at 65.2 years’ life expectancy.

To what extent, are these drops of life expectancy due to Covid-19, rather than other causes?

From 2019 to 2020, the CDC reports that 90% of the drop in Hispanic life expectancy was attributable to Covid; the corresponding rates were 68% for whites and 59% for blacks. (No breakdown was provided for the AIAN or Asian categories.) However, the CDC data splits its breakdowns into “contributions to decreases” and “contributions to increases” rather than overall net effect. Those readers who are used to looking at data and charts will expect a “waterfall” style chart; the CDC version is not this, and is not particularly helpful.

In any event, relative to the 2020 baseline, the further decreases in life expectancy during 2021 had multiple causes. Only among the White demographic group was Covid the cause of over half of the decline; unintentional injury (including overdoses) was the second-largest contributing factor and for the AIAN demographic group, worsening rates of death due to chronic liver disease and cirrhosis played almost as substantial a role.

And, finally, it is important to understand that the CDC data shows a continued improvement in life expectancy due to reductions in death due to such causes as influenza/pneumonia, COPD/emphysema, Alzheimer disease, diabetes, and perinatal conditions (infant deaths). In fact, strikingly, in 2021, heart disease was a contributor to increased life expectancy in the Black, Hispanic, and Asian demographic groups, but a contributor to decreased life expectancy for the White and AIAN groups.

Jane the Actuary Retirement

Forbes post, “The EARN Act’s Roth 401(k) Switcheroo Is A Gimmick, Not Sound Fiscal Budgeting”

Originally published at Forbes.com on June 30, 2022.

For some time now, one pocket of good news coming out of D.C. has been the “Secure Act 2.0,” a set of legislative enhancements to 401(k)s/retirement savings, expected to pass, when all is said and done, in a bipartisan fashion and in “regular order.” The House had passed its version of this legislation back in March, setting the stage for the Senate to move the process forward. The provisions are, as in the original Secure Act, a collection of many small changes rather than fewer more radical changes, including indexing (adjusting for inflation) the catch-up contribution limit, allowing employers to “match” student loan payments in the same way as 401(k) contributions, requiring auto-enrollment for new employees, increasing the RMD starting age up to 75, enhancing the Saver’s tax credit, allowing employer matching contributions to be made as Roth contributions, and requiring 401(k) catch-up contribution be Roth. It’s a long list.

Now the Senate has released its version, the EARN Act, with many similarities — and has also released a cost estimate: according to the “10 year budget window” math, the bill is fully paid-for, with the costs offset by the financial gain to the federal budget of shifting retirement savings from traditional tax-deferred savings to Roth accounts, in which taxpayers use money that they’ve already paid taxes on, but then benefit from the earnings being tax-exempt. So far, so good, right? People who need extra help get it and those who benefit from traditional IRA/401(k)s still get a retirement savings benefit, just with less-generous provisions.

But that’s not what’s happening. Here’s what the Committee for a Responsible Federal Budget had to say in its analysis:

“The $39 billion cost of the bill is offset entirely with timing gimmicks related to Roth IRAs. Even with the gimmicks, the bill would increase annual deficits from 2028 onward. In the steady state, we estimate the bill would cost $84 billion over a decade, including $12 billion in 2032 alone. . . .

“[T]the bill relies on gimmicks and timing shifts to achieve this supposed budget-neutrality. The legislation expands the saver’s credit and ABLE accounts and reduces taxes for first responders employee stock ownership plans but delays the start of these policies for 4 or 5 years. And it increases the required minimum distribution age for IRAs from 72 to 75 but not until 2032.

“Perhaps most egregiously, the legislation is offset by policy changes that would shift the timing rather than the amount of tax collections. Specifically, the legislation would require and allow greater use of “Roth contributions” to retirement accounts, which are taxable when made but allow for tax-free withdrawal (conventional retirement accounts are the opposite). While these provisions would raise $39 billion over the first decade, they would reduce future revenue as retirement funds were withdrawn. The net effect is somewhat uncertain, but it is very likely these provisions would be net deficit-increasing on a present value basis.”

They’ve got a handy table of the effect of these changes and I encourage readers to, as they say, Read the Whole Thing.

What’s more, the CRFB released its analysis a week ago. Earlier this month, Professor Olivia Mitchell of the Wharton School at the University of Pennsylvania and hte Director of the Pension Research Council (she’s a big name in the field) and her co-authors released a new study on exactly this issue: “How would 401(k) ‘Rothification’ alter saving, retirement security, and inequality?” “Rothification” is, essentially, what the EARN Act would promote, in part, referring to a shift into Roth-style instead of tax-deferred accounts. It’s an extensive analysis, but they helpfully provide the key results of their research in their abstract. (They use the jargon TEE and EET to refer to Roth and traditional tax-deferred accounts because it’s the international way of referring to these two types of retirement savings.)

“We find that taxing pension contributions instead of withdrawals leads to delayed retirement, somewhat lower lifetime tax payments, and relatively small reductions in consumption. Indeed, the two tax regimes generate quite similar relative inequality metrics: the relative consumption inequality ratio under taxed-exempt-exempt (TEE) is only 4% higher than that in the exempt-exempt-taxed (EET) case. Moreover, results indicate that the Gini measures are also strikingly similar under the EET and the TEE regimes for lifetime consumption, cash on hand, and 401(k) assets, differing by only 1–4%.”

In other words, according to top experts in the field, in the long run, rather than a 10 year budget window, “Rothification” does not send more money into government coffers to pay for other needs. It’s just a timing shift, collecting more money now and less later. And mandating or encouraging Roth accounts compared to traditional accounts does not have a significant impact on income inequality, again in the very long run.

So, yes, I’m all for improving retirement savings in as many (responsible) ways as we can. But the 10-year budget window is again proving to have pernicious effects on how Congress spends our money.

 

Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.  And, let’s face it, this article is two years old as I am making these updates in December 2024, and the Secure Act 2 has passed but the timelessness of the article is the ongoing nature of gimmicks.

Jane the Actuary General Interest

Arlington Heights School District 25’s $75 million referendum: Six reasons to vote no

Arlington Heights School District 25 is asking voters to approve $75 million in new spending over 20 years.  The money will be used

  • to add new classrooms to most elementary schools to provide all-day kindergarten, with the largest expansion 10 new classrooms at Westgate,
  • to expand gyms at Westgate and Dryden, and
  • to fund general building improvements, such as replacements of roofs, flooring, fire alarm systems, lighting, HVAC boilers, piping, parking lots, etc.

The district’s materials do not provide details on the split of costs among these three categories of expenditures.  What’s more, though I’ve seen additional details on such matters as future enrollment projections being shared by supporters, these are not available at the D25 website.

I am a parent in the district, and, though I (full disclosure) sent my children to the local Catholic school, I certainly believe that all children deserve a quality education — and that is already the case with D25 schools, which already offer a strong curriculum with many “extras,” provision of tech, fine arts and athletic activities.  In the run-up to the 2021 school board election, I discussed the district with parents and, outside of Covid-related decision-making, the only significant concerns I heard were a belief that kids with special needs were not being offered as high-quality an education as they should have received.

With that in mind, here are my objections to the bond proposal:

First, I do not believe that all-day kindergarten is a necessity for children educationally unless they have special needs, are at-risk due to their family situation, etc.  The regular outcry that “everyone else has it” fails to take into account the fact that SD25 is significantly different than its neighboring districts in its demographics; there are far fewer at-risk kids here in D25 than in neighboring areas with significantly more immigrant families.  When it comes to the dual-earner middle-class families which make up the largest part of the district, it is of course a cost savings to have one year less of daycare, and to avoid the logistical difficulties of half-days (day care centers typically provide transportation to nearby schools but there are challenges if one’s prior provider was located further away).  But when there are costs to be managed — and especially if special needs kids are already getting the short end of the stick, why is it more important to lighten parents’ cost burden in this one way, when other parents have costs around before/aftercare, summer care, and, of course, pre-kindergarten child care?

Second, the district’s materials vaguely reference “future enrollment growth.”  In an environment when birth rates are declining, I would be far more persuaded that D25 is an exception if they had provided concrete reasons to believe this.  There will be no enrollment growth due to new construction.  It is possible that housing cost increases may mean more families living in apartment complexes in units now occupied by singles or couples, but this is speculative.  There are no neighborhoods which are new enough for there to be a widescale turnover from original owners to new, young families — neighborhoods are established enough to be a mix of families of all types, and, if anything, family sizes are shrinking — homes which once housed a family with three kids now have two or one.  Are there reasons to believe that D25 is becoming more popular with young families and is an exception to the rule?  Maybe, but the district had the responsibility to demonstrate this rather than asking voters to take it on faith.

Third, the district plans to spend the money on a combination of new classrooms for all-day kindergarten as well as other building maintenance costs.  This is a serious red flag, and really, despite its appearance as #3 on the list, is really my top concern. These sorts of expenses should be covered by our ongoing tax money and should not require a separate referendum.  To ask for this raises a serious concern that the school district is not managing its money prudently, deferring expenses instead of planning for them.

Fourth, the district is planning to build these new classrooms without even having identified the source for the needed additional funds for the operational costs of an all-day kindergarten.  Again, this is a serious concern, especially since (no link here; I’ve been told this by a parent who has reviewed district finances) the district is already running a deficit and using reserves to cover $3 million in expenditures for the year.  Previous polling and surveys had discussed the possibility of a tuition-paying all-day extension — if that’s the case, why wouldn’t the projected tuition cover the construction costs over time?  And why wouldn’t the district share these plans?

Fifth, the district touts its status having the second-lowest tax rate of 8 neighboring districts, and the third-lowest operating expense.  But both of these will increase with the new referendum and the new kindergarten expansion, so it is misleading not to share how the tax increase will affect these.  Based on a review of our own tax bill, when it comes to tax rates, it looks like the district would become the third-highest of the eight comparator districts.  And, again, we don’t know what the operating expense will look like.

And finally, back to the educational question, my sixth concern:  I know that the “common core” demands for kindergarteners have escalated significantly even in the decade since my youngest was a kindergartner.  They are expected to be able to sound out words, and to have memorized sight words, and to be able to do “seatwork” as if they were first graders.  To reference my children’s experience, the school operated both half- and full-day programs, and I believe this expectation that the academic work for the full-day kids should not exceed half-day kept expectations in check.  Now I am seeing, from parents of D25 kids in local Facebook groups, discussions of tutoring help or summer school for children who aren’t reading at the end of kindergarten.  Pushing academics this early is especially a problem for boys, who are ready to sit down and do “seatwork” later, generally speaking, and end up medicated for ADHD when they aren’t ready for this.  Heck, many of the school systems that are touted as “top in the world” make a clear distinction and hold off on anything academic until first grade.  I am not an expert on what the district is doing, and perhaps these parents have indeed gotten this all wrong but if there’s any risk that all-day kindergarten becomes the new first grade, that’s a problem.

school bus
school bus, public domain, https://www.maxpixel.net/Bus-Vehicle-Education-Transport-School-Bus-School-4406479
Jane the Actuary Retirement

Forbes post, “Will Bernie Sanders’ Social Security Expansion Act Save Social Security – Or Wholly Upend The System?”

Originally published at Forbes.com on June 13, 2022.

In the news last week:

“Sanders, Warren propose bill to extend Social Security’s solvency for 75 years, increase benefits by $2,400 per year.”

As reported by CNBC, Senators Bernie Sanders (I-VT), and Elizabeth Warren (D-MA) introduced their latest version of a Social Security expansion and solvency bill, the Social Security Expansion Act. It has many similarities with the Social Security 2100 Act introduced repeatedly, most recently in November, by John Larson (D-CT), which, at the time, I criticized for, among other failings, introducing benefit boosts which would expire after 5 years, with the intent of appearing to be cheaper, but which would destroy the fundamental promise of Social Security, that of a stable, predictable benefit formula.

The Sanders and Warren version, for what it’s worth, does not play these games. Its increases are designed to be permanent, boosting benefits by an immediate $200 per month, setting a new per-person minimum benefit of 125% of the single-person poverty rate, adopting a more generous CPI index, and continuing benefits for the children of disabled or deceased workers up to age 22 rather than 18 for full-time students.

The bill, which was also introduced in the House with 19 co-sponsors, keeps the Social Security system funded for the entirety of the 75 year forecasting period, according to the analysis performed by Social Security’s Office of the Chief Actuary. How does it manage this? Fundamentally, with a tax hike on the wealthy and upper-middle-class.

  • Wages above $250,000 annually would be taxed at the same rate as workers currently pay in FICA taxes, 12.4%. This cut-off would not be adjusted for inflation, so that as soon as the existing earnings ceiling exceeds this level, all wages would be taxed, but above the earning ceiling, workers would pay taxes without earning additional benefits.
  • Households with earnings above $200,000 (single) or $250,000 (joint filers), again unadjusted for inflation, would also pay tax of 12.4% on their investment earnings, similar to the additional Medicare tax implemented to fund Obamacare.
  • And active S-corporation officers and limited partners would pay taxes at the combined Social Security + Medicare rate, or 16.2%.

This certainly fits in with politicians’ ongoing calls to “Scrap the cap” or that “the rich should pay their fair share.” As CNBC reports,

“’Today, absurdly and unfairly, there is a cap on income subject to Social Security taxes,’ Sanders said in prepared remarks during a Thursday Senate hearing.

“Currently, a worker earning $147,000 pays 6.2% of their income to Social Security payroll taxes. But if instead they earn $1.47 million, they pay just 0.6% of their income to Social Security, Sanders said.

“’That may make sense to somebody,’ Sanders said. ‘It doesn’t make sense to me.’”

Now, if we were speaking of the “fair” rate of income tax, no one would hesitate to say that it would be unfair for lower-income workers to pay a higher rate than the rich. But how precisely should we define what’s “fair” when it comes to a social insurance program, where Americans have been told for generations that they “earn” their benefits through the taxes they pay? Is it “fair” for upper-income Americans to subsidize everyone else’s Social Security benefits, or “unfair” to expect middle-income workers to pay their own way? “Fair” isn’t really a word that means anything in this debate — but don ‘t be fooled: even though the rates higher income earners pay, now on all income rather than wage income, are the same as the level of FICA contributions, these are just taxes, plain and simple.

Longtime readers will know that I’ve repeatedly said that it is outside the norm internationally to fund Social Security programs through such general income taxes and that even our wage base is unusually high. I’ve also argued that even if we collectively decided that’s what we want to do, we have to be aware that in doing so we give up the ability to use that tax money for any of the other ways we’d like to spend government money, from education to childcare and parental leave to better support for the disabled or those out of work, to, these days, yes, reducing the deficit, even though we are increasingly comfortable with the idea of middle-class workers “deserving” government benefits without those benefits being perceived of as “welfare.” It is also increasingly clear that the old notion that “Social Security must be contributory because people will not stand for a welfare program for the middle class” no longer holds in many ways.

But all that aside — once we establish this norm, why should the cut-off at which earnings no longer accrue benefits, remain where it is? Why should someone earning $147,000 a year earn benefits on the whole amount, when setting the cut-off at a lower level would mean more revenue going into the system? It may seem obvious that this threshold wouldn’t decrease, but I don’t think supporters of Sanders’ plan should take that for granted at all.

What’s more, Sanders’ plan combines the trust funds and tax rates for the old age/survivor’s and the disability parts of Social Security for the first time. What might that mean? It is well-known that it is so difficult to get an approval for disability benefits, that people have to spend money on a lawyer (forego a large part of their back benefits) just to make it through the system. The requirements for eligibility are also muddled, requiring in some cases that a person be unable to ever work any kind of job at all, where other countries have benefits for a “partial disability.” Why not reduce the benefits accrual cut-off wage and use the money saved for other, more pressing needs? How much money would be available for other needs if benefit accrual ended at $125,000, $100,000, or $75,000 instead? Or, looked at it another way, what justification is there for giving people government benefits on income up to as high as $147,000 when there are so many other needs (and such a high federal deficit)?

The Democrats have pitched their proposals to “Scrap the Cap” for years and polls show a fair degree of support, but it is simply necessary to understand that this proposal is a much more radical change than it might seem.

 

Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.

Jane the Actuary Retirement

Forbes post, “Does Aging-In-Place Work? What We Don’t Know Can Hurt Us.”

Originally published at Forbes.com on June 11, 2022.

Aging-in-Place — most of us think of this as the decision, as we get older, to stay in our longtime family homes, even as increasing infirmity or cognitive decline makes this harder. We know there are support programs available, providing home health aides, assistance with yardwork or a wheelchair ramp, a “senior freeze” to keep property tax increases at bay, and so on. And our homes hold so many memories and are a source of affirmation of the success we’ve had in our lives.

But is aging-in-place really the right decision? Or, put another way, does it “work”? Is it the right path for us all to take as we age, or would we be better off if we moved somewhere more suitable — a single-level house, or a condo in an elevator building, or a home near public transportation, or any of the communities designed for older adults? Would we miss our neighbors in our old communities, or quickly adapt and be glad we’d gotten past our hesitancy?

In the book Aging in the Right Place from 2015, author Stephen Golant provides a number of reasons why that “right place” might be the longtime family home:

•The advantages of a familiar neighborhood: the individual knows the shops and services and can navigate the area well even after physical or cognitive decline.

•The advantages of a familiar home: spatial competence (finding your way when the power goes out, navigating steps out of familiarity)

•Preserving familiar relationships – friendships and service providers.

•The attachment to possessions and pets is not disrupted (e.g., vs. moving to no-pets home); the home not only contains memories of the past but also reminders of past successes.

•The home affirms one’s self-worth; one fears (whether rightly or wrongly) that others will consider the person a “retirement failure” upon moving.

•Maintaining privacy, vs. moving from a single-family home to an apartment, or to Assisted Living, shared housing, or living with family.

At the same time, there are many quite considerable costs incurred in Aging in Place, not just direct financial costs, for which we can argue about whether the government should shoulder these, but less tangible costs:

•Financial costs: the cost burden of maintaining large older home with yard vs. smaller but newer space with maintenance covered by association/landlord

•Physical costs: the steps/stairs and narrow doorways can make home a prison for the physically-impaired or place the individual at risk of falls.

•Social costs: the idealized neighborhood relationships might not be real, and turnover in the neighborhood may mean that there is more likelihood of social connection with the intentional social opportunities of a senior community.

•Health costs: isolation can mean lacking help for medical emergency – even to the point of dying unnoticed. More mundanely, homebound seniors have less ability to cook healthy food, travel to doctors, etc.

•Finally, there are particular challenges for those experiencing cognitive decline, especially when there is no family member to notice or when decline is hard-to-notice.

Golant doesn’t beat around the bush, but writes that

“Older adults are now bombarded with a singular and unrelenting message: They should cope with their age-related health problems and impairments in their familiar dwellings. . . . Older people cannot turn on a TV, search n the Internet, read books about old age, or pick up a newspaper without getting this persistent stay-at-home message” (p. 63).

In a somewhat older article, in 2009, William H. Thomas and Janice M. Blanchard offered a sharp critique of the Aging in Place model, in “Moving Beyond Place: Aging in Community.” They acknowledge the fear of nursing homes but write:

“The bitter truth is that an older person can succeed at remaining in her or his own home and still live a life as empty and difficult as that experienced by nursing home residents. Feeling compelled to stay in one’s home, no matter what, can result in dwindling choices and mounting levels of loneliness, helplessness, and boredom.”

This is a stark message. But here’s an even more discouraging problem: in my research on the issue, I encountered one repeated refrain. There is no solid scholarly research which asks the question: “which choice is the better one, in terms of future quality of life, to stay or to move?” It’s not an easy question, to be sure: simply looking at the quality of life of the elderly and comparing those who live in single-family homes vs. various kinds of “elder-friendly” housing would not adequately distinguish between those who moved due to some sort of health problem and those who moved with the aim of preventing future health problems, for example. But there’s a data source that scholars have mined creatively to answer all manner of questions about retirement and aging, the Health and Retirement Study, and economists and similar researchers have been very creative in identifying “quasi-experiments” to answer this sort of question.

Discouragingly, though, given the relentless policy advocacy of supports for “aging-in-place,” it seems rather likely that this advocacy has discouraged researchers from considering that question in their research, depriving us all of what would otherwise be rather important information.

 

Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.

Jane the Actuary Retirement

Forbes post, “What Does Aging-In-Place Mean? It Depends On Whom You Ask”

Originally published at Forbes.com on June 5, 2022.

Americans, we’re told, want to “age in place,” as proven by repeated survey data.

And most of us probably think we know what it means — staying put in the home we raised our children in as we age: “the only way I’ll leave this house is feet first,” as my own father used to say.

But it turns out, it hasn’t always meant this, there is no single official definition, and not all experts even use what we might think is its straightforward meaning.

The CDC definition

At first glance, the term looks obvious: a google search turns up repeated references (for example, at the Rural Health Information Hub, Harvard Health Publishing, and the AARP) to a definition by the Centers for Disease Control:

“The ability to live in one’s own home and community safely, independently, and comfortably, regardless of age, income, or ability level.”

But it’s not that simple.

This definition was not a part of some sort of Aging-in-Place research project at the CDC. It does not come out of a larger discussion of the topic. Instead, that definition comes from a web page called Healthy Places Terminology, and, what’s more, the page itself is stated by the CDC to be inactive, part of the Healthy Community Design Initiative, “no longer a funded program.” In fact, the page was last reviewed on October 15, 2009, and, according to the Internet Archive/Wayback Machine, that page first appeared in 2004, but the Aging in Place definition was not added until the end of 2008, and a broader review of the Healthy Places initiate indicates that the project was concerned not with aging but with community design to encourage physical activity, for example, encouraging sidewalks so that it’s easier to walk to get to places.

And, in fact, if you think about it, this definition of “aging in place” doesn’t really make much sense: what defines being in your “own home” vs. some other living arrangement? If you move to an apartment or a retirement community or an assisted living facility, is your unit still your “own home”? And why does the definition state that “aging in place” is about living “safely, independently, and comfortably”? Don’t plenty of people “age in place,” that is, live in their longtime homes by themselves, without safety, independence, or comfort, when they are homebound and dependent on others?

The AARP

The AARP, on the other hand, has conducted a number of surveys in which a definition of Aging in Place is implied, if not directly stated: to stay in one’s current home forever, or for as long as possible. The first survey, “Beyond 50.05; A Report to the Nation Livable Communities: Creating Environments for Successful Aging,” dates to 2005 (seemingly; it is undated) based on 2004 survey data, and reports that 84% of those 50 and older, and 91% of those 65 – 74 and 95% of those older than 75, somewhat or strongly agree that they want “to stay in my current residence for as long as possible.” In December 2011, they sponsored a similar survey, “Aging in Place: A State Survey of Livability Policies and Practices,” which addressed a variety of issues related to housing and aging, similarly reports that “According to a 2010 AARP survey, nearly 90 percent of those over age 65 want to stay in their residence for as long as possible, and 80 percent believe their current residence is where they will always live.” In 2018, AARP updated their survey, reporting that 76% of those aged 50 and older and 86% of those 65 or older wanted to stay in their own home. And in another survey in 2021, they asked similar questions, though with fewer age bands, and less detail in reporting, stating again only that over 75% of those over age 50 wanted to stay in their current home.

In all these cases, the AARP makes it clear that to age in place is to remain in one’s home, with the title of the webpage featuring the latest data proclaiming, “Despite Pandemic, Percentage of Older Adults Who Want to Age in Place Stays Steady.” And in all these cases, the reports offer an explicit agenda: government agencies, nonprofits, and adults planning for future aging should all direct their efforts towards making this possible and providing more support for in-place agers.

A generation ago

It also turns out that, going back further (though early studies are hard to find), “aging in place” did not have this meaning at all. For example, in “Changing Concentrations of Older Americans,” an October 1978 article by Thomas O. Graff and Robert F. Wiseman at The Geographical Review, “aging-in-place” was used to describe not a housing decision but the process, at a broader, regional level, that caused a disproportionate share of older persons in certain regions of the country due to the out-migration of younger people for economic opportunity while their parents stayed put, as opposed to regions where the share of older adults was disproportionately large due to their in-migration.

And when Aging in Place was used specifically of housing choices, it did not have the positive framing of the CDC, but was considered to be a negative.

For example, a 1982 dissertation, “Aging in Place: An Investigation of the Housing Consumption and Residential Mobility of the Elderly,” by James David Reschovsky, considers the stability of the elderly, that is, their tendency not to move even when it would be beneficial for them, to be a problem that reduces welfare, or at least an economic puzzle that requires modeling and empirical explanation. Unlike current proposals in support of Aging in Place, Reschovsky’s policy proposals include assistance to elderly households to ease their search for more appropriate housing. Strikingly, he writes, “It may well be that what has been assumed to be a strong attachment for the current home by elderly homeowners is in fact more of a strong attachment to homeownership, and the pride and security attached to it,” and continues,

“The other area where individual counseling and assistance may be appropriate is in helping the elderly household decide whether a move is in its best interests. Many households may need some encouragement and support to make a move, particularly those mentally or physically frail” (p. 175 – 176).

The scholarly literature

Finally, in current academic journals, “aging in place” gets a pretty expansive re-definition.

For example, in “The quality of life of older people aging in place: a literature review,” in 2017, authors Patricia Vanleerberghe et al., write that

“Aging in place used to refer to individuals growing old in their own homes, but lately the idea has broadened to remaining in the current community and living in the residence of one’s choice. Indeed . . . the World Health Organization Centre for Health Development defines the concept broader as: ‘Meeting the desire and ability of people, through the provision of appropriate services and assistance, to remain living relatively independently in the community in his or her current home or an appropriate level of housing. Aging in place is designed to prevent or delay more traumatic moves to a dependent facility, such as a nursing home.’”

Indeed, the authors later claim that Aging in Place is so broad as to include assisted living facilities, which they identify as “a type of supportive senior housing.” As it turns out, these facilities are actually classified by the US federal government as a type of nursing home, or at any rate they have the same “long-term care facility” classification that meant that they had the same Covid lockdowns for their residents every bit as much as for actual nursing homes.

And what’s the point of this redefinition into meaninglessness?

My best guess is that Aging in Place has been determined by the AARP and other “aging experts” to be the right, acceptable way of living as one ages, and has become the unquestioned national or international policy objective. As a result, anyone who might wish to discuss alternatives that are not the very clear “stay in the family home” meaning, feels obliged to stretch the meaning of that term so that they can claim that their alternative is also a form of “aging in place.”

But this clever redefinition has not actually helped experts or government officials figure out the best sort of policies or programs to help the elderly as they begin to have physical or cognitive impairments. In fact (stay tuned . . . ), it’s probably made it harder because “aging in place” has become a party-line that one contradicts at one’s peril!

 

Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here

Jane the Actuary Retirement

Forbes post, “Does Having Children Cause Dementia? What To Make Of A New Study”

Originally published at Forbes.com on August 1, 2023.

Earlier this month, a dramatic headline appeared at the New York Post:

“No kidding: Rearing 3 or more children could make you literally lose your mind, study says.”

The dramatic statement from the article, three sentences in?

“The scientists found that having three or more kids vs. two children has a “negative effect on late-life cognition” — the equivalent of being 6.2 years older.”

Wowza. Score one for the Zero Population Growth folks, I guess. Surely there are all manner of factors playing into the equation, right? But it turns out that there is a “there” there, if you pay close attention to what the study does and does not say, and it’s not about childbearing decisions but a much bigger picture.

The actual study (with free public access to the PDF), “Does Childbearing Affect Cognitive Health in Later Life? Evidence From an Instrumental Variable Approach,“ by Eric Bonsang and Vergard Skirbekk, was published last month in the journal Demography. It does not intentionally try to assess the effect of three vs. two kids but that’s a side effect, so to speak, of the statistical method the study uses. Here’s how it works:

If one were simply to take a look at the number of children an older adult has and their cognition according to the tests that measure this, you wouldn’t really know whether one caused the other, in which direction, or whether something else entirely caused both. In other words, you’d just have a correlation. It could be possible that some unknown predisposition to dementia also causes people to have more rather than fewer children. Hypothetically, you could get around that by randomly assigning the number of children people have, but that would rightly be considered seriously unjust, so scholars have developed econometric methods in which they try to find situations in real life that resemble random experiments, and that’s what they did here, using the expectation that at least some of the time, couples who have either two boys or two girls will try for a third child.

It turns out that this is actually true (or at least was true) and the study authors can demonstrate it. Using a major ongoing survey of older adults (ages 50+) across Europe, the authors calculated that, as expected, of those survey participants who had at least two children, 50% of the time, those children were both of the same sex, and 50% of the time they had one of each sex. And a couple with two same-sex first- and second-born children turns out to have been seven percentage points more likely to have gone on to have more children, than a couple with one of each. Because of this difference, researchers can look at the effect of having one of each or a matched pair, on dementia later in life, do some further math around the proportion of people in this situation, and voila, you’ve got a calculation which, if it passes the statistical significance tests, is considered to truly show causality: among those who have three or more children because they missed having a boy (or a girl), compared to those who would have tried for that desired boy (or girl) but didn’t need to because they already had one, there is a greater incidence of dementia.

Specifically, taking the dementia screening scores from this study, and creating a composite score where the average score is set at 0 and the standard deviation set to 1, having more than 2 children reduces a woman’s dementia score by 0.311 and a man’s dementia score by 0.355.

This math is legitimate, though in order to take the final step in this mathematical method, called an “instrumental variable,” it requires making an assumption that the difference in dementia risks and likelihoods for the group of people who have an “extra” child because they really wanted at least one boy and girl, compared to those who got the desired mix on the first try, can be generalized to everyone else.

But what explains this result and what do we do with it? The answer is not “have fewer children.” Instead, what matters is understanding what the reason is for this effect and here what’s crucial is their result dividing up the countries in the study into four quarters: in all four regions of Northern, Western, Eastern, and Southern Europe, parents were more likely to have three or more children if their first two children were of the same sex, but only in Northern Europe did the overall analysis produce the statistically significant result that dementia was more likely as a result. On the same measure where the average score on a cognitive test was set at 0 and the range of scores was adjusted so that a -1 was 1 standard deviation lower, here are the 3+ child effects on scores for the four regions:

Northern Europe: -0.781 (p = .01)

Western Europe: -0.269 (p = .31)

Eastern Europe: -0.211 (p = .48)

Southern Europe: -0.204 (p = .57)

The p values are a statistical method for telling how likely a result is just by random chance; for all regions except Northern Europe, there is a strong likelihood that the apparent reduction in cognition is just due to flukes in collecting the random sample, but for Northern Europe the effect is strong enough that it’s no longer credible that it is just random.

So why should this effect be seen in Northern Europe in particular? The method used in this study doesn’t have any answers to offer but can only suggest potential explanations. Specifically, there are effects which have the potential to balance each other out, depending on circumstances: the more children one has, the more likely it is that one has financial stress due to added costs and reduced family income due to interrupted employment by mothers; at the same time, though, having more children boosts the degree of having contact with children which increases social engagement and reduces the likelihood of dementia in that way. In Northern Europe, the cost of living is particularly high so that stresses of a large family may likewise be higher, despite the social insurance support. At the same time, however, survey participants in Northern Europe with three or more children do not benefit from increased rates of contact with their children, in the same was as elders in other regions do, so they experienced a lose-lose set of circumstances — greater costs in rearing children without even the payoff of more time spent with family as they age.

It is also striking to consider the historical context when looking at this number-of-children cutoff, which, again, they didn’t choose for any reason other than that only with two children is it possible to have “one of each.” The waves of the survey took place between 2004 and 2015; while the survey covered adults beginning at age 50, dementia is most likely after age 80, so that the individuals involved were having their families in the 1960s or thereabouts. This was the point in time at which, in the United States, we were transitioning from a Baby Boom to a Baby Bust — as the World Bank data below makes clear — but the various European countries had much lower birth rates all along. (To be clear, the World Bank data begins in 1960 so the lack of data before this point is a matter of availability and says nothing about the significance of pre-1960 changes.)

To what extent did the shift towards lower birthrates affect families with more children?

At the same time, this was the time when women began entering the workforce in much larger numbers in these countries. Again, per the World Bank (and by decade in part due to significant gaps in the earlier years):

Women in Spain and Italy have had much lower labor force participation rates, in general — does this mean that the effect of an extra child might not have affected them in the same way as Scandinavian women? And, of course, the social supports now prevalent across Europe were in their infancy two generations ago. All in all, these differences suggest that it would be very interesting to see the same study repeated in the United States, where the equivalent study, the Health and Retirment Study, has been conducted for a decade and a half longer, perhaps, indeed, long enough to see whether there have been changes over time in the association between three children and dementia, and drill down further into what sorts of circumstances produce this.

So what’s to be learned? Not that children are bad, of course — but this does serve as an additional piece of evidence that dementia is not as simple as unsolvable genetic predispositions, but that there is much more to be learned about the condition.

 

December 2024 author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.